Lux Investing

Find the future value of $2500 invested at 5.5% for 4 years if the interest is compounded quarterly?

answer to nearest dollar.

Public Comments

1. FV=PV(1-i)^n The above calculates the future value, (FV), of an investment, (PV), accruing at a fixed interest rate of i% for n periods. each year has 4 quarters for 4 yrs 4 *4 =16 = n FV = 2500(1+.055)^16 = $5888 Sorry they are right. I used the right equation but forgot to divide the interest rate over the 4 quarters.
2. A= P(1 + R/N)^nt P is your initial investment, or 2500. R is the rate (written as a decimal), so 5.5% = .055 N is the time period in which the money compounds (quaterly = 4, yearly = 12, etc.) so here, N is 4. T is time. 4 years, so 4. Substitute. A = 2500(1 + .055/4)^(4 x 4) Solve. 2500(1.01375)^16 2500(1.244210538) A = 3110.526346 = $3,110.53 Well, we got different answers. I've always used this equation. The only difference is they used "i" (same as my R), but I divided by N, the incriments when the money compounds.
3. The formula used is: A = P * [1 + (r/n)]^(n*t) Where: A = Amount P = Principle (amount deposited) r = annual interest rate n = number of times compounded in one year t = number of years Let's plug in those values: A = P * [1 + (r/n)]^(n*t) A = $2500 * [1 + (.055/4)]^(4*4) A = $2500 * [1 + (0.01375)]^(16) A = $2500 * [1.0375]^(16) A = $2500 * 1.2442105384947 A = $3110.53 Rounded to the nearest dollar = $3110 Good luck in your studies, ~ Mitch ~ P.S. - Sarah's equation is way off base. We can make a rough estimate the final answer: $2500.00 * 5.5% = $137.50 <-- First Year $2637.50 * 5.5% = $145.06 <-- Second Year $2782.56 * 5.5% = $153.04 <-- Third Year $2935.60* 5.5% = $161.46 <-- Fourth Year $2935.60 + $161.46 = $3907.06 There's no way it could be $5888!